How to save for a car as a teenager, whether they want to buy one at 16 or in their later teen years.
Is your child wondering how to save for a car as a teenager?
This is likely the biggest purchase they’ll make as a teenager (and possibly, as a young adult), so getting help with how to do it is a great idea.
When I was younger, I knew I wanted to buy a car the moment I turned 16 as soon as I could. I just needed to know how to save for a car as a teenager.
Since that article didn’t exist back then, I’m going to write it now to help your teenager with their goal.
How to Save for a Car as a Teenager
Here are the steps it’ll take to (successfully) save for a car as a teenager:
- Have a sit-down with parents
- Set a target savings goal
- Calculate the money gap
- Work it into your weekly budget
- Try out smart saving strategies
- Stay motivated + determined
Don’t worry – we’re going to get a bit more specific about each of these.
Step 1: Have a Sit-Down with Parents
Before your teen starts working on their car savings goal, you both need to have a sit-down to come up with some really important questions that will affect everything.
After all, buying a car as a teen is a huge deal. You both need to be on the same page.
Out of this meeting, the two of you need to have an understanding of the following:
- Any vehicle type/model limitations (which type of car are you allowing them to purchase?)
- Who will be paying car insurance? What type of car insurance will that person be responsible paying for (you’ll definitely want to download my free printable car accident checklist for them to keep in their glovebox)?
- Who will be responsible for any repairs needed?
- Will they be required to take a driver’s ed course to decrease insurance costs and increase driver safety? Who will pay for this?
- Car maintenance details (gas, oil changes, registration, inspection, cleaning, etc. here's how to help a teenager get organized)
- Whether they’re paying in cash, or you’ll be taking a loan out for them and they’ll pay you monthly – if so, who is responsible for the down payment on the car?
- Additional responsibilities once you own a car (will they need to drive their siblings/pick them up, driving to work, if allowed or not allowed to have passengers, things to put in your car teenager, etc.)
- Will you require that they maintain an emergency savings fund of $XXX dollars, before they’re allowed to buy a car, in case they need new tires, have repairs, get into a crash, lose their income source and can’t pay their insurance?
See – I wasn’t kidding. Lots to discuss and hash out in this meeting.
Psst: you might want to check my article out on setting money boundaries with your child.
Step 2: Set a Target Savings Goal – How Much Should I Save for My First Car?
Now that you guys have hashed out some of these spending responsibilities and limits, let’s look at how much your teen will need to save up.
A target savings goal is the amount your teen will need to save up in order to successfully buy their car. It can also have a deadline associated with.
If this is your teen’s first car, then they likely have no idea how much they’ll need to save up for such a big purchase.
To be honest, when I saved for my own first car as a teen, I had no idea either! I simply saved up as much as I could, and by 17, that was $1,700 (which happened to be enough to purchase a used, 120,000-mile Chevy Cavalier).
That’s why they’ll need to do some research, to get an estimate of what they need.
Here’s what they need to get an estimate (a range is good) for:
- Vehicle Cost: What they’ll pay for a vehicle depends on whether or not they’re buying used, whether or not they’re buying or taking out a loan with your help, who they might know (got an uncle car salesman that can help them, like I had?), etc. Write down the total cost if they’re paying cash, or the down payment if you’re taking out a loan with them and they need to pay you monthly. What percentage of the car’s cost do you expect them to have in a down payment, if taking a loan?
- Insurance Cost: If they know the type/model of car they want, then have them call up two car insurance agents for a quote. If they don’t, then use this car insurance estimator (use the state one) to get a number. Don’t want to enter your info? Then use this chart for estimates by state. How much should they save up in insurance costs ahead of time, to be able to purchase the car? I’d say three months’ worth of insurance costs.
- Registration and Title Costs: Research the cost to get a car inspected, a new title, and a car registered in your state.
- Other Sale Costs: You’ll likely pay sales tax, document fees, and other things when purchasing a vehicle. Again, research what these will be for your state.
- Monthly Gas Cost: Brainstorm a list of the places your teen will likely drive the most to and from (like school, or their job). Then, estimate the gas cost (a range is fine) that they can expect to pay each month.
- Predictable Maintenance Costs: No car owner – well, besides a new one, like a teenager – should be surprised that they need periodic oil changes. Estimate a few of these regular maintenance costs, and add it to the list.
Now, you want to total up the numbers your teen came up with for each of these categories of automobile spending. A range is a good idea, with a minimum threshold, and then a more conservative one, that they need to save up for.
Congrats – they’ve got their target savings goal!
Let’s move on.
Psst: you might want to check out these 19 gifts for new drivers, in case yours just got their license!
Step 3: Calculate the Money Gap
There are two money gaps we want to be aware of here.
The first, is the gap between how much they have saved right now, and how much they need to reach their savings goal (what you calculated above).
And the second gap? Is how much they earn each month, and how much they’ll need to earn in order to afford the monthly and ongoing costs of owning a vehicle.
If they fail to meet one or the other of these? Well, then their goose might get cooked (meaning, they’ll likely need to ask you for help, financially).
Help for Money Gap #1: For the first money gap, make sure they take into consideration other money sources that might decrease their overall target savings goal amount (meaning, they can get to their goal faster). For example, are you, the parents, going to help them with any parts of the car costs (and are there any requirements for that, such as maintaining a good attitude and decent grades)? Can they dedicate 50% of any money gifts (for birthdays, Christmas, could be a smart way to spend your graduation money, etc.) they receive towards this goal?
To calculate this one, have them add up all of their current resources to be used for their car savings goal, and then subtract that from their target savings goal range. The gap is what’s left for them to save.
Help for Money Gap #2: For this one, you can decrease the likelihood that they’ll need to ask you for money to help with their car by requiring that they maintain a certain amount in an emergency fund before they’re allowed to purchase a vehicle. Say, $500 or $1,000.
To calculate this one, have them add up the monthly maintenance costs from above (gas, insurance, etc.), then subtract that from their income. Hang onto this number, as it will be a line item in their budgets moving forward.
Step 4: Work their Savings Goal into their Weekly Budget
Has your teen ever set up a proper weekly or paycheck budget?
Because if they haven’t, after setting a big savings goal is the perfect time to do so.
You’ll find my free budget worksheet here, plus check out these teenage budgeting tips.
Your teen can fill this out, and then based on working with the numbers, figure out how long it will take them to save up for their target savings goal.
You’ll want to help your teen pay attention to savings intensity level. You can have a light, moderate, or high intensity level.
If they’re serious about saving up for a car while they’re still a teenager, then I would say they need to have a moderate intensity level (and high, when they can swing it). This is in large part because they likely aren’t making a lot of money right now.
For example, saving $250/month for a person who earns $5,000/month means they’ll be saving just 5% of their income. But that same $250/month for a teen earning just $800/month? Well, that eats up 31% of their total cash – a much higher intensity level (despite it being the same $250).
For a $6,000 used vehicle, it would take them two years to save up (and that’s not taking into consideration other costs of vehicle ownership). Meaning, if they can swing an even higher intensity level, that would be better.
Hint: check out the smart saving strategies below, for a few ideas to turbo-boost their savings efforts.
You’ll want to manage their expectations that they’ll need to make sacrifices in their budget and spending so that they can increase the amount they’re saving each week and each paycheck (hint: hang around until the motivation section for tips on how to keep your teen motivated, since they’re attempting to tackle a long-term savings goal for high school students).
A Word of Caution: Be careful here. Your gung-ho teenager might, in their super-enthusiasm to become a car owner – overestimate the amount of money they can really afford to put towards their savings goal each week/paycheck.
Step 5: Try Out Smart Saving Strategies
I’m not going to lie – between a low income, a long-term savings goal, and needing a healthy dose of capability when it comes to delayed gratification – your teen is facing an uphill climb.
But it can be done. I mean, I did it while earning just $98/week, mucking out horse stalls after school.
Your teen can do it, too!
These smart savings strategies I’m sharing with you guys will make it a bit easier to manager.
1. Use the Monthly Maintenance Costs
Make a line item in their weekly budget right now, with their estimated monthly car costs. This serves two purposes:
- They can “test drive” their new monthly expense, to see how it feels to take on the responsibility of car ownership
- They can then use that expense and shovel it right into their savings account to go towards their savings goal
2. Dedicate a Large Portion of Gifted Money
Have your teen make a commitment to dedicate 50% or more of any money gifted to them – from a birthday, a graduation, Christmas, etc. – towards their savings goal.
Psst: gifting money to a teen? Here's my graduation money card ideas.
3. Offer a Savings Match Program
If your teen shows you how responsible and determined they’re being…you’ll be one proud parent, right?
Maybe offer them a savings match program towards their car.
For example:
- 10% match of funds saved
- 50% match of funds saved
- Interest rate that beats the banks (so, like a 5% interest rate bonus on money they send to their savings account, instead of the paltry ones available now)
4. Increased Earning Opportunities
I’ve yet to meet a parent who doesn’t have work that needs to be done around their home. Extra work, outside of chores.
Now, whether you want to pay for that or not is up to you. BUT, it could be lucrative for your teen as well as a help to you to let your teenager handle some projects and tasks around the house that you would be willing to pay for.
Bonus points if you have them negotiate for the pay they’ll receive. Negotiating is an important money life skill!
5. Car Share Program
If you are okay with your teenager taking on some of the driving responsibilities for younger siblings, or errand runs, then you can set up a car share program where they get to use the family car to do these things, plus they earn a small amount to put towards their own car fund for helping out the family.
Step 6: Stay Motivated + Determined
Look – I’ll be the first to say that taking on a long-term savings goal is difficult.
It can be a hugely valuable lesson they’ll draw on in years to come. But, they will need to sustain motivation and determination for quite a while.
You could help them to create a reverse-engineered vision board for teens, like I detail in my article on how to save up for an iPhone as a kid.
They could use a savings tracker to visually show them the progress they’re making. Here’s a bunch of free printable savings trackers.
Alright – let’s move onto the last section, my own story about saving up for a car as a teen.
How to Save Money for Your First Car – My Own Story
Perhaps I should name this article “how to save up for a car at 17”, because that’s how old I was when I bought my first car with money I had saved on my own.
And it took me about a year to do. Mostly because I had used up all of my saved money from the past few years to save up for a student exchange trip to Spain (those were an awesome 6 weeks!).
I grew up on a family farm, and so there was plenty of work (and then some) to complete. When our family opened up a fall and winter stand along the highway where we lived, there were suddenly lots of earning opportunities – wo(manning) the pumpkin stand, cash register in the shop, keeping an eye on inventory, heading up the horse rides, etc.
Then, my father actually hooked me up with a horse mucking job at a local veterinarian’s (thanks, Dad!). I earned $98/week at the height of that job, and was able to save up the $1700 I needed to purchase my first used vehicle (a 1997 Chevy Cavalier) at the age of 17.
Now, I had a great connection to make my $1,700 go farther – and that was my uncle. Well, actually, my father’s friend who we always called Uncle Rob.
He took my $1,700, and gave me a great deal on a trade-in car he had received the other day. It had a decent amount of mileage, but it was in good condition. And it ended up lasting me 7 whole years (through college and three years, after!). What a fantastic beater car that was.
I hope I’ve shown you not only how to save for a car as a teenager, but also how to coach and guide your teenager through responsible car ownership. Lots to talk about between the two of you, that’s for sure, but take the tips and suggestions above and you’ll each have a much clearer idea of how to move forward with this savings goal.
Amanda L. Grossman
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